IMPLICATIONS OF THE SHALE
GAS BOOM FOR THE GCC
PETROCHEMICAL
PRODUCERS
Hoda Mansour, Phd‫آ‬
University of Business and Technology
The Research Objectives
• The paper aims to shed light on the varies effects of the American shale gas
revolution on the Gulf Cooperation Council “GCC” energy suppliers in general
and more specifically on petrochemical players.
• It also aims to study the various factors affecting the production of both; U.S.
shale gas and GCC petrochemical industry.
The Research Hypothesis
The main hypothesis of the study is that there is inverse relationship between U.S.
shale gas sales and the gulf oil and petrochemicals production, as the increase in
U.S. shale gas would lead to a decrease in GCC petrochemical production.
U.S. Shale Gas
The US Department of Energy indicated in its Annual Energy Outlook of 2012 that
total unproved shale gas resources have more than quadrupled since 2006 to reach
482 trillion cubic feet at the end of 2011, representing 22% of total U.S. unproved
natural gas resources.
GCC Petrochemical Industry
•The GCC petrochemicals companies today are ranked as the first worldwide
in mono-ethylene glycol production capacity with (29%), while ranked third in
methanol capacity (12%), fourth in ethylene capacity (15%), polypropylene
(12%), and finally the fifth in both the polyethylene capacity (12%), and the
propylene capacity (7%).
Importance of Petrochemicals in GCC
The share of petrochemical industries in the manufacturing sector in the GCC have
increased from 13.9% in 2007 to 17% in 2011. The manufacturing sector accounts
for 15% in GCC GDP, although, it might seem small percentage, but its importance
is backed to job creation on the short run and as an engine of development on the
long run after oil and gas depletion.
Petrochemicals contribution to GDP in GCC countries
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0
0
0
0
#REF!
0
0
#REF!
#REF!
0
0
0
0
Importance of Petrochemicals in GCC Cont.
Recent analysis of the Gulf Petrochemicals and Chemicals Association shows that
petrochemicals workforce share from whole workforce in GCC countries reached
6% in 2011, where only 44 % of these workforces are nationals in the GCC. annual
employment growth in petrochemical sector since 2010 is 15%, which is faster than
the growth rate of employment in the manufacturing sector that accounted for 7%,
making the petrochemicals the fastest growing sector in the gulf economy and one
of the main sectors that provide job opportunities.
Y-to-Y growth of employment in petrochemicals sector, %
The Model of the Study
The study uses a regression model to statically test the existence of a relation
between the dependent and independent variables and in case of existence what is
its type. The method is useful for many reasons, especially that it determine the
degree of the correlation between variables and its future scenarios
After estimating the regression model, the final model will be as follows
GCC = 34.594+0.004*Shale Gas
Linear relation between the two variables
GCC Petrochemicals production (in million tons)
75
70
65
60
55
50
45
40
2000
4000
6000
8000
withdrawals from shale Gas wells (in billion cubic feet)
Descriptive Statistics
Std.
N
Minimum Maximum
Mean
Deviation
GCC Petrochemicals
production (excluding
captive consumption),
5
43
68
54.00
11.203
5
1990
8501
4627.30
2593.823
million tons
Withdrawals from shale Gas
wells (billion cubic feet)
Valid N (list-wise)
5
Correlation between Variables
GCC Petrochemicals
production (excluding
captive consumption),
million tons
GCC Petrochemicals
production (excluding
captive consumption),
million tons
Withdrawals
from shale Gas
wells (billion
cubic feet)
Pearson Correlation 1
.971**
Sig. (2-tailed)
.006
N
5
Withdrawals from shale Gas Pearson Correlation .971**
wells (billion cubic feet)
Sig. (2-tailed)
.006
N
5
**. Correlation is significant at the 0.01 level (2-tailed).
5
1
5
Model Results
The overall results, using linear regression model, indicated that there is a
positive linear relation between the GCC Petrochemicals production in
million tons and the withdrawals from shale Gas wells in billion cubic feet.
However, that doesn't necessarily means that they affect each other, as the
model clarifies that the production of one billion cubic feet of U.S. shale gas
increases the production of GCC petrochemicals by four thousand tons
only.
Shale Gas Production Challenges
• The water
• Transportation
• shale gas wells are normally drilled in clusters, not separated from each
other. Clusters usually contain from 10 to 15 well which are drilled from a
single pad. In those clusters, anything up the surface of earth is removed
(35 meters high) and remains the wellhead only, which might result in
removing many natural landscapes.
• The effect of shale gas production is not shortened on water only, but it has its
side effects on air too. Recent studies have showed that some wellheads are
losing an amount worth of 9% of their total output in methane leakage. Methane
itself has almost 72 times the global warming potential of carbon dioxide over
20 years.
GCC Petrochemical Industry Challenges
• GCC's Gas shortages can be considered as the biggest challenge for GCC
petrochemical industries.
• The six member countries of the GCC collectively hold roughly 23 % of global
gas reserves. However, gas supply–demand imbalance in the region has forced
the countries of the GCC, with the exception of Qatar, to consider importing gas
to meet rapidly rising demand. There are many reasons standing behind those
gas shortages, the main one is that natural gas continues to be the most
consumed source of power generation in GCC
Conclusion
• Due to factors affecting the production and transportation of shale gas, Analysts
believe it is too early to speak of a direct effect from U.S. shale gas on GCC
petrochemical production.
• The GCC countries are asked to pay more attention to gas supply as the main
challenge facing petrochemical industry in the near future is gas shortages.